How Millennials Move the Single-Family Build-To-Rent Housing Market
Popular Millennial destinations across the Sun Belt recorded the highest demand for build-to-rent single-family homes.
Image by Markus Lenk from Unsplash.
The rise of flexible work options, the desire for more space, and skyrocketing home prices have fueled insatiable demand for single-family build-to-rent housing across the country, specifically among aging Millennials ready for household formation. With most individuals in this cohort still burdened with student debt and with rising mortgage rates, renting remains a more favorable option for many. Single-family rental homes can provide the perks and amenities of a mortgaged home without long-term financial burdens.
Millennials have been the largest generation in the U.S. since 2019, with around 72.1 million individuals born between 1981 and 1996, according to Pew Research Center. People aged between 34 and 44 years are expected to double over the next five years, ensuring demand for built-to-rent homes, Green Street research highlighted.
Nationwide, there are around 16 million single-family rental homes, accounting for 35% of all rental units, and over the past 10 years, there has been a 25% uptick in the number of occupied units, Green Street revealed. As a result of strong demand over the past decade, catalyzed by the pandemic, construction activity picked up the pace. According to a report from Northmarq, in 2021, single-family rental home deliveries rose by around 5% compared to 2020, and construction starts were up by roughly 20%. In 2022, developers are projected to deliver some 60,000 single-family rental units.
Sun Belt Metros Drive Demand
While build-to-rent single-family homes are gaining popularity across the entire U.S., markets in the Southeast and Southwest, or the so-called Sun Belt, are more favored among developers. This is not surprising, given the region’s strong population growth and economic expansion fueled mostly by Millennials looking for less dense and more affordable cities.
According to Green Street, the Sun Belt metros have a disproportionate share of single-family rental portfolios. The research firm discovered that companies specializing in single-family rental homes own the most properties in Georgia (5.1%), Florida (4.2%), Arizona (3.7%), Nevada (3.3%), and North Carolina (3%).
Northmarq also confirmed that southern metros are the most active when it comes to single-family rental completions. Since the beginning of 2019, completions in the region accounted for 46% of total deliveries across the country, and that figure reached 50% last year. From 2020 to 2021, the total number of completions in the region rose by almost 30%.
Investment Activity Stays Moderate
Investment activity in the sector accelerated in 2021, with the highest sales velocity recorded in the fourth quarter, when total properties sold nearly eclipsed the whole of 2020, according to Northmarq research. The transaction volume amounted to roughly $2.3 billion in 2021, more than double the amount recorded the year before.
Investment has moderated in the sector through the first quarter of 2022, which is not surprising considering high inflation and increasing interest rates. According to Northmarq, some of the drop in transaction volume is seasonal, as sales velocity tends to peak toward the end of the year.
Related Questions
What are the benefits of investing in single-family build-to-rent housing for millennials?
Millennials looking to invest in single-family build-to-rent housing can benefit from the potential for appreciation over time, the ability to generate passive income through rent payments, and the ability to customize and manage their own properties. Additionally, single-family rental homes provide investors with the ability to diversify their portfolios with multiple properties and minimize risk. However, investors must be aware of the potential drawbacks, such as the risk of tenants not paying rent or causing damage to the property, as well as the costs associated with property taxes and insurance.
Source: How Millennials Move the Single-Family Build-To-Rent Housing Market and Single Family vs. Multifamily Investing: A Comparative Guide
What are the risks associated with investing in single-family build-to-rent housing for millennials?
The risks associated with investing in single-family build-to-rent housing for millennials include construction costs that have risen dramatically over the past few years, construction delays due to supply chain issues, and the possibility that the renovation work may not be enough to get the desired investment outcome. Additionally, investment activity in the sector has moderated in the first quarter of 2022 due to high inflation and increasing interest rates.
What are the advantages of investing in single-family build-to-rent housing for millennials?
Investing in single-family build-to-rent housing for millennials has several advantages, including the ability to minimize risk by diversifying a portfolio with multiple properties, the potential for appreciation over time, and the ability to generate passive income through rent payments. Single family rental homes also provide investors with more control over their investments, as they are able to customize and manage their own properties. Additionally, single family rental homes have lower price points than multifamily properties, making them more accessible to millennials.
Source: How Millennials Move the Single-Family Build-To-Rent Housing Market and Single Family vs. Multifamily Investing: A Comparative Guide
What are the best strategies for investing in single-family build-to-rent housing for millennials?
The best strategies for investing in single-family build-to-rent housing for millennials depend on the current market conditions. According to this article, markets in the Southeast and Southwest, or the so-called Sun Belt, are more favored among developers due to the region’s strong population growth and economic expansion. Investment activity in the sector accelerated in 2021, with the highest sales velocity recorded in the fourth quarter. However, investment has moderated in the sector through the first quarter of 2022 due to high inflation and increasing interest rates.
When investing in single-family build-to-rent housing, it is important to consider the current market conditions and the potential for future growth. Investors should also consider the cost of financing, as interest rates can have a significant impact on the profitability of the investment. Additionally, investors should research the local market to identify areas with strong rental demand and potential for appreciation.
What are the most important factors to consider when investing in single-family build-to-rent housing for millennials?
When investing in single-family build-to-rent housing for millennials, the most important factors to consider are location, vacancy rate, and seasonality. Location is key, as it largely determines the types of tenants the property will attract. Vacancy rate is also important, as it affects the potential return on investment. Seasonality should also be taken into account, as properties in college towns may have higher vacancy rates due to school schedules.
According to this article, markets in the Southeast and Southwest, or the so-called Sun Belt, are more favored among developers due to the region’s strong population growth and economic expansion. Additionally, this article states that properties in college towns typically have a higher percentage of student tenants, which could lead to seasonal vacancy issues.
How can millennials maximize their returns when investing in single-family build-to-rent housing?
Millennials can maximize their returns when investing in single-family build-to-rent housing by focusing on markets in the Sun Belt. According to Green Street, companies specializing in single-family rental homes own the most properties in Georgia (5.1%), Florida (4.2%), Arizona (3.7%), Nevada (3.3%), and North Carolina (3%).
Additionally, Northmarq has confirmed that southern metros are the most active when it comes to single-family rental completions. From 2020 to 2021, the total number of completions in the region rose by almost 30%.
Millennials should also consider the current interest rate environment when investing in single-family build-to-rent housing. According to this article, the Federal Reserve has pushed interest rates up by 50 basis points, which could affect returns.